Assume that the market for bread is perfectly competitive. The demand for bread is given by the equation: D = 120 - 10P and the market supply for bread is given by: S = 60 + 5P. Determine the equilibrium price and quantity of bread
What happens if the price of the bread is set at $10 per loaf? What happens if the market price is set at $2 per loaf?
In a perfectly competitive market, the equilibrium price and quantity of a good are determined at the point where the quantity demanded is equal to the quantity supplied. To determine the equilibrium price and quantity of bread, demand is set to be equal to supply:
D = S
or, 120 - 10P = 60 + 5P
or, 60 = 15P
Therefore, P = $4.
Therefore, the equilibrium price of bread is $4 per loaf. The equilibrium quantity of bread can be determined by plugging the equilibrium price into either the demand equation or the supply equation. The equilibrium quantity, Q = 120 - (10 ×
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